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Widen tax base: Agricultural income tax should be introduced along with measures to free farm trade

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Widen tax base: Agricultural income tax should be introduced along with measures to free farm trade

Finance minister Arun Jaitley yesterday categorically stated that government has no plan to tax agricultural income. This followed a proposal by Niti Aayog member Bibek Debroy to levy such a tax. Jaitley’s statement is unfortunate as it shows that the default mode of India’s policy makers is to ring fence agriculture and hamper its modernisation. It ignores the linkages between the agriculture and non-agriculture sectors which, among other things, allows for tax evasion. India’s policy makers need to treat agriculture on par with other sectors, which means not just taxation but also removing multiple regulatory obstacles which limit opportunities for farmers.

Any serious campaign to widen the tax base and curb black money should address what income tax department reports have shown: agricultural income is used as a conduit to avoid tax. A tax on agricultural income will bypass most of India’s 90 million agricultural households as their average income is way below the threshold income. One way to proceed could be to act on a proposal of the last tax administration reforms committee, which suggested a high threshold of Rs 50 lakh annually. To facilitate this move state governments will have to be enlisted to follow the relevant constitutional procedure. This should be feasible with BJP in power in almost half of India’s states.

A move to tax agriculture should be packaged with steps to help farmers. For instance, sudden export bans on a commodity when international prices are soaring amounts to imposing a cap on farmer incomes. In the same vein, restrictions on movement within India distort agricultural trade. Agricultural products too need a common market and farmers should be freed of shackles which tie them to designated wholesalers. The NDA government must use its political mandate to fundamentally transform agriculture.

This piece appeared as an editorial opinion in the print edition of The Times of India.